Mergecandor Corp. is considering the acquisition of Tenderon Inc. Mergecandor has 2 million shares outstanding selling at
Question:
Mergecandor Corp. is considering the acquisition of Tenderon Inc. Mergecandor has 2 million shares outstanding selling at $30, or 7.5 times its earnings per share, and Tenderon has 1 million shares outstanding selling at $15, or five times its earnings per share. Mergecandor would offer to exchange two shares of Tenderon for one share of Mergecandor.
a. If there would be no wealth created from the merger, what would be the earnings per share of the merged firm? Its price-to-earnings (P/E) ratio? Its share price? Would there be any wealth transfer between the shareholders of the two companies?
b. Suppose that, after the merger, the market would not adjust the P/E ratio of Mergecandor, which will stay at 7.5. What would be the new share price of the merged firm? Would there be any wealth transfer between the shareholders of the two companies?
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a The following table shows how the earnings per share priceto earnings ratio and share price of the merged firms can be calculated That since the mer...View the full answer
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